Modern retail could account for 70% of industry by 2020

The modern retailer directly connects the producer and consumer, eliminating the middleman chain and thereby reducing costs

"India Retail Industry is likely to emerge as the largest in the world. Modern retail started in India a decade ago and now occupies 35 % of the retail industry. By 2020, this may surpass 70% and the 10,000 new retail stores in the pipeline would cover over 2,50,000 sq feet," Amit Vaishnav, Managing Director of Chennai-based Mega Food Company said on Sunday at a conference. He was of the view that a partnership between the manufacturers and modern retailer is a win win situation for both

Retailers were looking to gain shelf space and market name, Vaishnav said. "The modern retailer is leveraging the power of retailing. He places his own private brands on the shelf. He directly connects the producer and consumer, eliminating the middleman chain and thereby reducing costs," he added.

Vaishnav was of the view that a partnership between the manufacturers and modern retailer is a win win situation for both. "It can lead to the production of high value and niche products. It derives benefits of economies of scale and provides quality assurance on the products. The manufacturers can earn easy shelf space and higher margins reducing time in getting the product to the market. The retailer too earns higher category margins. If the product cost and quality is good and is going down well with the consumers, the retailers also benefit, he elaborated.

Talking of structuring private labels, Jean-Christophe Goarin, Consultant, GOA Consulting, referred to private labels in European and Indian markets. "European markets have a long standing practice of private labeling which have seen a continuous growth. The perfect example is Marks & Spencers that has been there for almost a century. In India, success has been seen in Westside, which is a full private labels department store; Pantaloons which has mixed brands private labels. Food brands are generally restricted to pulses. India is a market driven by suppliers and MRP's driven with low margins and short payment terms," elaborated Goarin, adding that India had a good scope for private retailing and labeling.

According to him, store brands have become reference for shoppers. "Brands offer 30-50 % gross margins. The consumer can compare the costs of various brands and make his choice. There are risks as well as rewards for suppliers, " Goarin said, explaining that risk came in the form of competition with own products and reprisal measures from traditional retailers while the rewards include less competition from European markets. Moreover retailers remain loyal to those who supply good quality products at reasonable prices," he pointed out

Goarin recommended the setting up of a dedicated team separate from buyers and manufacturers, and elaborated, “They should have a separate budget for packaging and quality control and resist the 'grow the margins only' approach. They should be the outside expertise on the whole process and build brand equity through dedicated and consistent quality control focus."

S Venkatraman, Director, Food & Agribusiness Advisory, Rabo India talked about Global trends in food labeling, food servicing in India and food retailing beyond urban India. "Foreign traders are into food, clothing, furniture and furnishings etc, while Indians focus is only on food. In countries like France and Germany, private labels have almost 30-40 % control on retailers. Shelf turnover is estimated to be 10% higher for brands in Europe. The strategy for private labeling is to improve the marketing of their product.," he pointed out.

Moving on to food servicing in India Venkataraman said, " India is rising on the Food Demand Curve. In countries like India and China, people are moving from mass consumption to convenience food technology. The trend of ready to eat food is slowly catching on. Food servicing market is estimated at Rs 35,000 crores where the share of private label is less than 5 per cent". Stressing the need for food retailing beyond urban India , he said, " Rural India is in itself a big market comprising over six lakh villages. It is a growing but an untapped market. Food retailing in rural areas would increase the prosperity in these areas," Venkataraman added.

Source : Indiainfoline